S&S ISA in Vanguard

threlkeld53

Retired. Living off state pension, savings and a small pension.
I have a spare £20k which don't particularly need for 2-4 years. Decided to open directly with Vanguard, an S&S ISA and put in the whole £20k into their VLS20 or VLS40.
Obviously past performances of any funds are certainly no guarantee of present and future results. Having said that, if it were you, what kind of return would you be satisfied with, bearing in mind that the above £20k would only have been saved in a building society or bank's fixed term bond, earning a paltry 1% p.a.?

eskbanker

I'd be satisfied with any sort of positive return if investing for only 2-4 years, as this is below what would normally be considered a sensible timeframe over which to invest, and so has a higher risk of capital loss than most would consider acceptable....

bowlhead99

If I invested in VLS40 for a couple of years I would be satisfied with a return greater than, say, negative fifteen percent. Obviously, I would prefer more, and ideally more than the money I could get from a savings account, but over the short term anything can happen - when you buy investments designed to be held for the long term and then cash them out after only 2-4 years. So I would simply hope that the return wasn't heavily negative, and be 'satisfied' if it wasn't.

If I was entirely unwilling to get that sort of negative return, I wouldn't use the product.

Albermarle

In the longer term ( >10 years) you should have a very good chance to see a positive result, although it is not 100% guaranteed.
Looking into the future is obviously quite difficult but the consensus is that the next 10 years will not be as lucrative as the last 10 .
Also VLS40 is a relatively low/medium risk product, which also means it is not likely to grow that much in any case. Probably you should think about getting an average return over 10 years as 1% above inflation ( it's just a guess though) . Savings accounts typically pay less than inflation . 

El_Torro

As mentioned it's not a good idea to invest if you will definitely need all the £20k in 4 years or less. 

One option would be a fixed term savings account. For three years you're only looking at a return of between 1.2% and 1.5% though, still pretty terrible when you consider that you can't touch your money for those three years. Still, I'd rather do this than invest in VLS and hope I haven't lost money after 3 years.

I seem to be promoting Premium Bonds in every post I make today, but I'd be tempted to stick the £20k there for 3 years and leave it at that. At least then you still have the option to cash in some or all of your Premium Bonds before the 3 years is up. 

dunstonh

An economic cycle is around 10 years.  You will get bad years, nothing years and good years.   You do not know the order.  You could get 2-3 good years or 2-3 bad years in a row.       Time dilutes the zig zag nature and you eventually end up (after about 5-7) years with enough averaging that you would expect to be in profit.

With just 2-4 years, you are at a high risk of being in a loss position.   If you cannot do 5 years at least then you really shouldn't go with risk based options.

threlkeld53

Thanks to all the above for your feedback.

So the consensus is to invest for longer than 5 years. Ok I take that on board and have given it much thought. I guess by stretching it a bit, I could stick the money away for a few years longer than I originally mentioned. The incentive being a possible long-term benefit as opposed to receiving less than 1% fixed for 12 month bonds with a bank.

My question now is if I still opened an S&S ISA with £20k, with the intention of keeping it there for 6-8 years say, what happens if I added more funds in say years 4 & 5? Would those funds not get much benefit by the time year 8 is reached?

Also what would you guys go for between VLS20,40,60,80 & 100?

bowlhead99

threlkeld53 said:

My question now is if I still opened an S&S ISA with £20k, with the intention of keeping it there for 6-8 years say, what happens if I added more funds in say years 4 & 5? Would those funds not get much benefit by the time year 8 is reached?

Well, if you put some more pounds in in year 5, then by the time you get to year 8, those pounds have only been there 3 years.

And as Dunstonh mentioned above, "You could get 2-3 good years or 2-3 bad years in a row" "With just 2-4 years, you are at a high risk of being in a loss position" (i.e. on the new money you have put in during year 5).

So when you get to year 5 if you fancy putting more in, you should consider whether you are going to want it back in only a few years time from then, or can you commit to investing it longer; when you are sitting there pondering in 2025 what to do, you can make a decision at that point what sort of investment is suitable for your the money you have in front of you. There is no need to decide now.

Also what would you guys go for between VLS20,40,60,80 & 100?

What we would do with our money might be quite different to what you should do with yours. Originally your aim was to beat cash by a bit. VLS100 is the entire opposite end of the risk spectrum from cash, and could theoretically drop in value by 50% over the course of a year or two. In the long term, it hopefully has the best chance of a large return. However, you are only considering 6-8 years, not decades, and you are a first time investor. So 100% equity sounds like a lot of risk. 

If you put in £20,000 and it is only worth £12,000 next year will you just shrug and think, ah well, hopefully it will recover and grow a bit over the next 7 years?  Or will you get scared, cash it in to avoid further losses, locking in an £8,000 loss, and then miss the bounce-back that happens over the subsequent five to ten years? If you are likely to be very worried indeed if you see big losses, I wouldn't consider the 80 or 100 products which could easily produce them over the short to medium term.

25_Years_On

threlkeld53 said:
Also what would you guys go for between VLS20,40,60,80 & 100?

It depends on how much risk you want to take. I was wary and put half in VLS40 and half in VLS60, not a large amount. After a while I found I was happy to be a bit more risky and moved the VLS40 into the VLS60. You can switch funds in later years to reduce risk. By way of comparison in the recent falls and as expected the VLS20 lost about 10% in value and now is priced higher than the February high. So it seems OK for defence. Now all you need is a time machine so you can invest on March 22nd this year.